We have seen the earnings picture for Amazon (AMZN – Analyst Report) deteriorate quite substantially since their second and third quarter EPS misses. The view hasn’t improved lately and the stock is back to a Zacks #5 Rank Strong Sell.
And this despite the headline calls from star technology analysts like Gene Munster of Piper Jaffray who just this week reiterated his Overweight rating on the stock and maintained his price target at $400. Earlier in December, the firm had increased the target to $400 from $350.
Munster’s optimism around the stock comes from Amazon’s Prime subscription service and same-day delivery. Munster believes that the Prime service will see significant growth in subscribers, which will translate into increasing revenues. And the same-day delivery service is expected to give the company a competitive edge in the e-commerce market.
Munster’s sunny outlook was primarily fueled by the company’s recent revelation that about 10 million new members had tried Amazon’s Prime service for the first time this holiday season, leading to yet another record seasonal period for the e-commerce giant.
Why the Zacks Rank Pessimism?
It’s all about the direction of analyst earnings estimates. And lately, they’ve been headed lower. In the last 90 days, the 2014 EPS consensus has slipped from a loss of 3-cents to a loss of 75-cents.
And 2015 EPS projections fell from a profit of $1.70 to a profit of $0.88. The most recent downward revisions came after the company reported a GAAP loss of 95-cents vs expectations of a loss of only 73-cents for Q3, reported in late October.
Zacks Rank Smelled the Rat in July
Amazon’s big earnings miss was in Q2, reported on July 24, when the company offered a loss of $0.27 vs the consensus projection of a loss of only $0.13. That represented a whopping 107% miss.
But two weeks prior, the stock fell to a #5 Rank because of downward earnings estimate revisions (EER), the key metric of the Zacks Rank. My colleague Brian Bolan had the prescience to make Amazon his Bear of the Day on July 23, with the stock trading at $360, before the company dropped that bomb.
Amazon reports its FY14 Q4 in late January. It should be a very exciting few weeks in the stock until then as investors battle over the optimism of bulls like Munster and the reality of a persistent decline in profits over the last four years.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.